Growth without scale effects due to entropy
We eliminate scale effects in the Balanced Growth Path of an expanding-variety endogenous growth model using the concept of entropy as a complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence of the existence of scale effects long ago in history with evidence for no scale effects in today’s economies. We show that empirical evidence supports entropy as a stylized form of the complexity effect. Then we show that the model can replicate well the take-off after the industrial revolution. Finally, we show that a model with both network effects (as spillovers in R&D) and entropy (as complexity effects) can replicate the main facts of the very long-run evolution of the economy since A.D. 1. Future scenarios may help to explain (part of) the growth crises affecting the current generation.
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